Expert discusses their role
Engage with a gathering of mortgage brokers and it is likely you will encounter frustrations related to securing financing for self-employed clients.
Undoubtedly, these borrowers encounter distinctive challenges, and brokers wield substantial influence in tackling these issues and ensuring seamless access to necessary funds.
So just what complications do they face, and how can brokers help?
What complications do self-employed borrowers face?
Dave Castling (pictured), head of intermediary distribution at Atom Bank, said assessing the financial status of those without a fixed PAYE income proves more intricate than evaluating employed individuals.
“Income fluctuations, whether annual or monthly, add complexity; the nature of self-employment, whether as a sole trader or incorporated, introduces further complications,” he said.
Incomplete or disorganised financial records from the client, Castling said, can aggravate the mortgage application process. Castling added that navigating the landscape of lenders accepting various income sources also poses challenges.
As a result of these complexities, he said mortgage brokers play a crucial role in enabling self-employed clients to access a mortgage.
Why are mortgage brokers important for self-employed borrowers?
Brokers, Castling said, play a pivotal role in ensuring self-employed borrowers have well-organised financial records before embarking on the mortgage application journey.
“Lenders require documents like SA302s, company accounts, and bank statements; failing to review and align the keyed income with the evidence, and not submitting all documentation promptly, can cause processing delays,” he said.
For a broker, Castling said it is key to understand in detail your customer and have an in-depth understanding of the lenders that fit their needs.
“The ability to read accounts is a substantial advantage, allowing you to independently verify the declared income before submission,” he said.
Whilst it is absolutely the responsibility of the lender to assess the affordability of the loan, Castling said a diligent and knowledgeable broker can head off issues at the pass by evaluating this first.
Moreover, Castling said it is important for a broker to explore their client’s business plan, since understanding the customer and their future is crucial to giving accurate advice.
“Are they expecting growth? Could their business be impacted by external factors? Hypothetically, could these factors affect their ability to make monthly payments? Do you know the share of profits? Do you know the clients’ dividends and salary? What is the customer’s role in the business?” Castling asked, rhetorically.
Knowing the above, he added, will result in a broker being well prepared for any questions that an underwriter may have.
It is also essential, Castling said, to have a view on which lenders take net-profit, salary and dividends, or salary and pre-tax profit, as this can have a substantial impact on the amount of borrowing available to the client.
“Additionally, this can have an impact on the loan-to-income (LTI) available, so it is a key area to get to grips with,” Castling said.
Castling also believes it is important to structure clients’ expectations, as it may take longer if the documentation is incomplete, highly complex or presents unusual company structures.
Therefore, getting a client to truly engage with the process early on, he added, can make a big difference.
What is the outlook for the self-employed market?
Looking ahead to what lies in store for self-employed borrowers in the UK, Castling highlighted that the pandemic caused a dip in the number of self-employed individuals, reversing two decades of growth.
“Though we have moved away from the peak of five million self-employed workers in December 2019, there are still over 4.2 million, constituting 13% of the workforce according to the Office for National Statistics (ONS),” he said.
However, while economic conditions impact businesses across the board, Castling said, the inherent advantages of self-employment continue to attract workers.
“Despite the perceived challenges, assisting self-employed borrowers can be a manageable task with the right knowledge and approach,” Castling said.
Therefore, if advised upon correctly, Castling believes the sky is the limit for self-employed individuals moving forward.
How important do you believes brokers are in the self-employed market? Let us know in the comment section below.